Logistics Data Is Key To Cutting Supply Chain Costs

At first glance, you would think logistics at PDQ Air Spares would be fairly simple. The Hampshire, England-based distributor of spare parts does very little outbound shipping. Its airline customers use their own freight agents to manage order shipments. Nor does PDQ handle its own inbound shipments; it outsourced that function to B&H Worldwide. The third-party logistics provider negotiates rates and schedules shipments with carriers such as FedEx, DHL and UPS for PDQ.

At the same time, managing logistics and logistics costs has become critical to PDQ's business. “If we commit to a 48-hour turnaround time, we have to hold a lot of inventory. Or we need to know that we can get it delivered from the U.S. to the U.K. in 24 hours so we can fill an order on time,” says Matthew Price, general manager. PDQ stocks a core nucleus of products, but to reduce inventory costs, it places a number of small orders for overnight delivery as sales orders come in. Striking the right balance on an as-needed basis is a challenge. “We have to watch those shipments carefully because we can't pass on the cost of inbound freight,” Price says.

B&H Worldwide developed a software application that aggregates the status of all PDQ's shipments on one screen, regardless of the freight carrier. Price gets an alert when something goes wrong—say, when a part misses a flight connection, does not reach the next stage of its journey on schedule or does not clear customs. That allows him to alert his airline customers in case they have engineers and technicians on standby, awaiting the part.

“If I have ordered an item that is supposed to be delivered tomorrow, I don't need to know when it's going right,” says Price. “I do need to know when it goes wrong so I can take steps to address the issue. That's what I need from my logistics these days.”

PDQ's approach is an example of the changing nature of logistics and supply chain management today: Information about the movement and management of parts, components and supplies is as important as the physical movement of those items. That is true whether the items being tracked are inside a warehouse, hangar or MRO facility, or in transit from one point to another.

“Logistics today is all about transparency and the exchange of information,” says Greg Colgan, general manager of the Cavok division of Oliver Wyman. “It's great that you can send me an advance ship notification that tells me you're going to ship something. But what I really want to know is where my parts are now, what was done to them and when [I will] get them back.”

In an industry where an audit trail is mandatory, logistics information is critical for compliance, Colgan notes.

There are several reasons information has become so important.

One is the increasingly just-in-time nature of lean operations. If an MRO or airline is reducing its in-stock inventory, managing logistics is critical to keep aircraft flying. “If your inventory is accurate and your logistics processes are predictable, you can minimize how much you need to invest in components,” says James Elliott, product marketing manager for Mxi Technologies, a provider of MRO software.

Another is the increasingly complicated and fragmented nature of today's supply chains. Complex parts may be assembled or repaired at multiple locations and involve several trading partners. “When everything was done in-house, you could walk across the hall and find out what's going on,” says Ed Wodarski, vice president of solutions for aerospace and defense for Servigistics. “When processes are outsourced, you're at the mercy of other people's databases. What's more, you can't schedule maintenance without the right parts, and you can't do planning without knowing where those parts are.”

Last, and just as important, logistics is now a competitive advantage for those who do it best. “For the companies that can ship faster, plan better and provide more timely information, logistics is an area where they can differentiate themselves,” says Hannes Sandmeier, Oracle's vice president for applications development.

Supply chain technologies are the enablers of logistics information. The technology tools can be divided into four categories: enterprise-level systems of record, supply chain execution systems, visibility and event management, and data collection. Here are the roles that each of these plays:

It starts with a system of record, a software application that receives and aggregates information from a wide variety of sources. The most common system of record is an enterprise resource planning (ERP) system. When it comes to optimizing logistics, the most important application may be parts or repair forecasting based on the aircraft's performance and operational schedule, as well as the number of flight hours on the major components and their maintenance history.

With that information, a fleet operator or MRO provider can do a better job of planning what parts and components will be needed and positioning them at the right locations. That is especially important for a fleet operator with more than a handful of storage and repair locations.

“You want to optimize your inventory across all of your locations at the highest possible service level, given your budgetary constraints,” says Sandmeier. “If you're only operating three locations, that's not so difficult to do. If you have 200 locations, you need to understand the fleet of parts you are trying to address. Otherwise, there's no way even the best transportation system can move those parts around in a cost-effective manner.”

Once a network is in place, a global inventory, or network optimization, tool collects information from other planning systems to determine how much stock should be maintained in each location. By constantly monitoring inventory levels and operational plans, the system can create the transfer orders to rebalance inventory levels. “We don't tell customers where to put their warehouses or repair locations,” says Erik Lindholm, head of product management for Syncron, a supply chain management software provider in Stockholm. “But by constantly monitoring the inventory levels at those locations, we optimize inventory across the network.”

Spare parts and repair-planning systems also act as systems of record for sourcing and tracking the parts required for a maintenance event. “In the MRO world, buying a part is the last resort,” says Wodarski. “The first logistics challenge is always whether I can move parts I already have in my network from one location to another where they're needed. If so, how do I get it there? If I can't satisfy the demand with parts that are already in my network, do I have something on order? If not, do I go to a parts broker or to the OEM?”

For any given part number, Wodarski adds, an airline or an MRO provider may have several parts in motion, such as one that is out for repair or in transit from a supplier. “The coordination and control of those simultaneously moving inventory positions is critical,” says Wodarski.

A planning application aggregates data from the disparate sources related to those parts and suggests the most effective way to meet the parts demand. “We have criteria to figure out how to best move the inventory within your network and then make a recommendation,” says Wodarski. Once a planner accepts that recommendation, the system sends the information to the appropriate warehouse and transportation management systems that will fill the orders.

Systems of record such as ERP, inventory optimization and parts planning are known as supply chain management systems. They help organizations decide how much inventory to carry and what modes of transportation to use to ship products. Then they create a plan.

Supply chain execution systems act on those plans. They make things happen in the supply chain. Warehouse management systems (WMS) and transportation management systems (TMS) keep track of the amount and location of inventory in storage (stock-picking activities when parts are pulled to fill an order or for a maintenance event), create replenishment orders when stock falls below minimum levels and manage transportation activities.

In industries such as retail, wholesale grocery and beverage, it is common to use a best-of-breed, or standalone, WMS or TMS system. Due to commercial aviation industry compliance requirements, warehousing and transportation software systems are more commonly integrated components of a broader MRO software package. “In most supply chains, you buy a part, you get it shipped where it's needed, and you're done,” says Chris Reed, managing director of Trax, an MRO software provider. “In our industry, you have rotables that are moving back and forth between locations. You have parts that require special containers, special transportation and even specialist companies to move the parts.”

In addition, conventional WMS and TMS systems are not designed to manage the compliance requirements associated with a repair, monitor inventory levels to minimize obsolete stock and understand how many repairable parts could become serviceable and go back onto the shelves. Those benefits are the result of integrating supply chain execution into MRO programs. “When logistics applications are integrated into an MRO application, you know what parts are needed to perform the task, the configuration of those parts and when they're needed,” says Mxi's Elliott. “You also have visibility into the parts you have in stock. That allows you to avoid ordering parts that you already have or ordering non-compliant parts.”

When a maintenance plan is generated, it builds a bill of materials that will be required for that event. When the bill is sent to the warehouse management application, the WMS reserves parts that are in stock for that event, automates the steps to pick, kit, pack and deliver them on time to a technician, and automatically creates a requisition of parts that must be purchased.

The systems also can automate the replenishment of regularly used parts. “If you understand your demand and monitor your stock levels, you can manage the replenishment so you don't have to expedite a shipment,” says Elliott. “That reduces your transportation costs.”

The goal of all these systems—starting with the solution that B&H Worldwide is providing PDQ Air Spares—is to make supply chain activities more transparent. If you know what is happening in your supply chain, and where the bottlenecks occur, you can take proactive steps to reduce logistics costs, says Russell Smith, COO of B&H Worldwide.

“We can track a delivery from Point A to Point B,” says Smith. “But we also capture the milestones that happen within that journey, such as when a part is packed for shipment, when the shipping documents are complete, when it's put on an airplane, when it gets through customs and when it gets delivered to a repairer.”

With that type of information, an airline or MRO organization can capture data such as the average time it takes to ship a part from Miami to Sydney. “If you have an aircraft sitting on the deck in Sydney and know that it takes 38 hours to get a part from Miami on a routine basis, you can make decisions about whether to expedite that part or not,” says Smith. Similarly, by analyzing what happens to a shipment through the various milestones of a delivery, a shipper can determine where the supply chain is slowing up.

“If you know where your bottlenecks are, you may be able to add $10 to a domestic movement rather than $100 to an international shipment and achieve the same thing,” says Smith.

With all the data being collected by today's systems, it is easy to become overwhelmed. For that reason, many systems allow a user to define the information that is important to their operation and then receive an alert when a significant event occurs. PDQ Air Spares, for instance, wants to know when crucial deliveries are delayed.

When a maintenance event is launched, Trax uses a series of lights to monitor parts needed for the repair. A red light indicates the part is out of stock or a delivery is overdue. A yellow light indicates the part has arrived at the facility. A green light indicates the part has been inspected, paperwork is complete and it is ready to go on the wing. “We are able to pick out the problems and speed up the workflow,” says Reed. “If you see a lot of green lights, you're happy.”

Similarly, repair plans for an aircraft can be shared across the hangar. “You plan the repair cycle for the component while the aircraft is in the air, and you give visibility to everyone involved in the repair as to what has to happen as soon as the part is removed,” says Elliott. “When the plane lands, everyone, including the technician, knows what to do.”

Supply chain management and logistics systems are only as good as the data that feeds them. That information traditionally has been keyed or scanned by bar code into a computer system. Radio-frequency identification (RFID) and sensor technology that OEMs such as Boeing and Airbus are incorporating into their aircraft are beginning to play a role in logistics. “With RFID, we know it has arrived as soon as the part passes by a reader. The goal is to have more of the parts tracking themselves rather than relying on human input,” says Trax's Reed.

RFID-enabled logistics solutions are being developed by companies such as EAM RFID, a subsidiary of life vest manufacturer EAM Worldwide. EAM began adding RFID tags to its life vests in 2007 for its internal manufacturing, inspection and shipping processes. “The real-time visibility we get from tags has allowed us to reduce our testing and automate time-consuming tasks like inspections,” says John Hatzis, a senior software developer. “When we pack an order, if 40 vests are supposed to go into the box, we know that 40 vests go into a box.”

When EAM customers receive a shipment, they use an RFID reader or portal to capture the serial number of the vests in a carton, their expiration dates and any other relevant information on the tag without opening the box. “It dramatically reduces receiving time,” says Hatzis.

Meanwhile, FedEx has rolled out a GPS- and cellular-enabled sensor called SenseAware that allows a shipper to track the location and condition of critical parts in real time.

While an RFID system loses track of the location of a tag between scans, the SenseAware product uses GPS technology to track a shipment's location and cellular capabilities to communicate its location. The sensor also tracks the temperature and barometric pressure for sensitive products.

“If a part is coming from a warehouse that's 80 miles from the airport, the AOG department can 'geofence' the route and get an alert if the truck goes off route,” says Chris Swearingen, marketing manager for the SenseAware solution. “They can receive an alert when it arrives at the airport and know that it arrives at the right location. If a mechanic doesn't receive the part, he can look on his screen and find out it was delivered to the other side of the warehouse and go get it.”

SenseAware is carrier-agnostic and enables AOG planners to access a dashboard on their computer to track all of their shipments in real time.

“We're enabling customers to monitor high-value shipments and make real-time decisions in their supply chains that they couldn't in the past,” says Swearingen. “Our CEO said way back in 1978 that the information about a package was as important as the package itself. This is taking logistics to that next level.”